China’s stock rally diverges from emerging markets as tech surge drives gains

Gains in Chinese stocks have been known to have a growing effect on other emerging markets. However, this time around, China’s stock rally has diverged from the emerging markets, with multiple developing-nation equities remaining stagnant.

Analysts claim that since most Chinese stock gains stemmed from the ongoing tech frenzy and not exactly from an improving economy, the rally has had little impact on other markets.

China’s tech-supported stock rally began in January after Deepseek launched.

Manik Narain, head of emerging-market strategy research at UBS Group AG in London, argued that a tech boost primarily drove the Chinese stock rally; hence, it’s very unlikely to have a “large spillover impact” on emerging markets.

He added, “This is not the classical Chinese playbook of 2009, 2016, and 2020 that ultimately morphed into deported EM recoveries.”

Since August 2024, The MSCI China Index has climbed by over 30% while EM outside China fell by 7%, contrary to other years where both markets saw gains consequently.

Between 2009 and 2010, China’s share surged by 63%, while EM shares rose by more than 100%. More recently, in 2016 -2017, China’s stocks grew by 50% while the EM broad gauge increased by 46%.

Chinese stocks were first influenced by tech boost in mid-January when the AI model Deepseek launched. Prior to this, specifically in September 2024, the stocks surged slightly over an overall economic stimulus.

Meanwhile, the KraneShares CSI China Internet Fund, an ETF tracking China, received over $1.5 billion in 2025. Nonetheless, the iShares MSCI Emerging Markets ex-China ETF was set for one of its few monthly outflows since 2022.

Vedda says China’s outperformance could last longer

Vincenzo Vedda, chief investment officer at DWS International in Frankfurt, believes China’s outperformance of other emerging markets may last longer. Nonetheless, China’s stock market is overly worried about higher US tariffs.

President Donald Trump has already imposed 25% levies on auto imports from the country and is considering announcing more “reciprocal tariffs on April 2. Analysts have hinted that any more levies could dull the stock market growth and even result in more losses for EM.

Some funds, however, have begun cutting off their Chinese holdings. Rohit Chopra, a portfolio manager at Lazard Asset Management in New York, even said that they slashed some Chinese holdings from most of their funds. He claimed their funds were slightly less exposed to or underweight in China.

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